Ratio Analysis Of Lockheed Martin Essays Examples
Lockheed Martin Corporation is one of the biggest US-based multinational aerospace companies. As for now, it is world`s largest defense contractor, specializing in high-technology military equipment such as strategic and tactical missiles, aircrafts, missile defense systems, radars and military electronic appliances.
Financial analysis of Lockheed Martin Corporation was conducted using its ratios for 2012 and 2013 years. Data for these ratios was obtained from Form 10-K for the fiscal year ended December 31, 2013. Results of analysis are presented in table 1.
Liquidity ratios are used in order to examine financial soundness of a company in a short term and its ability to pay obligations, arising from operations. Values of two main liquidity ratios, current and quick ratios, indicate that the company may have some difficulties in repaying short-term debts because these values are lower than commonly used thresholds, 1.5 and 1.0 respectively. However, within 2013 year situation regarding liquidity of Lockheed Martin improved a bit, since values of these ratios increased insufficiently.
Asset turnover ratios indicate operational efficiency of utilizing different types of assets, with higher turnovers meaning lower carrying costs and higher efficiency of usage of particular asset type. In 2013 collection period decreased from 51 to 47 days, signifying improvement in collection of receivables, though it is still above industrial average of 37 days. For the purposes of this study it was assumed that this industry consists of Boeing, General Dynamics, Northrop Grumman and Textron, whose financial statements were used to estimate average values of turnover ratios. Turnovers of inventory and fixed assets decreased insignificantly and are still higher than average values (13.8 compared to 10.3 and 9.6 against 7.9 respectively). It gives evidence of high efficiency in resources utilizing.
Financial leverage ratios are measurements of capital structure and company`s ability to repay debt from its profit. Extreme ratios of capital structure of Lockheed Martin can be attributed to ongoing process of buying back shares, which decreased shareholder equity to low levels, where influence of minor factors on it may cause huge swings in such ratios. In particular, adjustment of discount rate used for evaluation of postretirement benefit plans caused decrease of shareholder equity by $1 billion in 2012 and increase by $3 billion in 2013. The fact is that high ratio of debt to equity does not signify high debts, because TIE ratio is rather high, meaning that Lockheed Martin has no difficulties in servicing its debts. So debt level of Lockheed Martin is quite moderate and high levels of financial leverage are caused by low shareholder equity and peculiarities in postretirement plan valuation.
The main profitability ratios improved significantly in 2013 and show rather high profits, generated by Lockheed Martin. Net profit margin increased from 5.8% to 6.6% and ROA rose to 8.24% from initial 7.1%. Value of ROE is a specific case due to peculiarities in computation of shareholder equity. That`s why in 2012, when amount of shareholder equity was almost equal to zero ($39 mil), calculation of any ratios, where shareholder equity is an input, does not make sense.
P/E is a main market-based ratio, showing a number of dollars the market is willing to pay for $1 of net income per share of particular company. So increase in P/E from 10.1 in 2012 to 15.1 in 2013 indicates higher market valuation of Lockheed Martin, though it is attributed mainly to general increase in stock market valuations during 2013 year.